Strategy

Retail’s Woes Push Payless Into Bankruptcy

The struggling discount footwear chain joins nine other major retailers that filed Chapter 11 in the first three months of this year.
Matthew HellerApril 5, 2017
Retail’s Woes Push Payless Into Bankruptcy

Discount footwear chain Payless Shoesource has filed for Chapter 11 bankruptcy, becoming the latest traditional retailer to succumb to the shift to online shopping.

As part of Payless’s reorganization plan, it will immediately close nearly 400 stores of its more than 4,400 stores in more than 30 countries. The company has been in talks with lenders for months and plans to reduce its debt by almost 50% through the Chapter 11 process.

“This is a difficult, but necessary, decision driven by the continued challenges of the retail environment, which will only intensify,” CEO W. Paul Jones said in a news release. “We will build a stronger Payless for our customers, vendors and suppliers, associates, business partners and other stakeholders through this process.”

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Payless joins nine other major retailers that filed bankruptcy in the first three months of this year, including Radio Shack, HHGregg, Wet Seal, and Limited Stores.

“The model of online retailers is winning out,” CEO of Amplify ETFs, told CNN Money. “They are more competitive on pricing, they have better selection, and their convenience level is quite high.”

Analysts are concerned that the rising tide of retail bankruptcies could push the entire industry into a downward spiral as shoppers steer clear of malls that have been vacated by anchor tenants and other stores.

“As the vacant square footage grows larger, mall owners are being increasingly forced to turn to non-conventional tenants to fill empty space,” ZeroHedge noted.

Before filing Chapter 11 on Tuesday, Payless had been in talks with its lenders for months over a restructuring plan. It said it had lined up $385 million in financing to keep its stores running while it reorganizes.

The company, which was founded in Topeka, Kan., in 1956, was acquired in 2012 by private-equity firms Golden Gate Capital and Blum Capital Partners. It bills itself as the “largest specialty family footwear retailer in the Western Hemisphere” but according to Moody’s, revenue fell 4% from October 2015 to October 2016.

“We are confident [the bankruptcy] process will also enable us to leverage Payless’s existing strengths to succeed,” Jones said.